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Province urged to pool public sector pensions

Ontario could save $100 million a year by pooling investments in at least 100 public sector pension plans, report says.

By Rob FergusonQueen's Park Bureau

Fri., Nov. 16, 2012

Ontario taxpayers could save $100 million a year if the government let at least 100 public sector pension plans pool investments and share costs, says a new report to Finance Minister Dwight Duncan.

The change – requiring a detour around egos and fiefdoms -- was recommended Friday by Bill Morneau of the C.D. Howe Institute, who found “significant opportunity” for smaller pension funds to benefit from economies of scale.

Pension plans involved could include ones at universities, hospitals, municipalities, community colleges and the like with $1 billion or so in assets, but not massive plans like the Ontario Teachers’ Pension Plan and its $117 billion bankroll.

“With political will and effort, a pooling framework would achieve potential savings of $75 million to $100 million annually,” Morneau wrote in his 34-page report.

“I heard from leaders who are frustrated by the responsibility of managing pension assets, given the value of these assets and their own lack of investment management expertise.”

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Pooling the assets would help boost investment returns and lower costs at a time when public sector pensions are under pressure from low returns in the markets -- and help the government as it looks to reduce expenses while fighting a $14.4 billion deficit.

Morneau said there is “sufficient support” among public pension fund managers to move forward and create an investment pool of “well over $50 billion in assets.”

Such a move would leave public sector workers in their existing pension plans and with existing benefit and contribution levels, unless changes were required, the report added.

And the greater pools of money to be invested would have better access to wider range of investments not within reach of small plans on their own.

Duncan said the report, which he requested in the wake of his budget last spring, will now go out for public feedback as the government develops an implementation plan.

A bigger issue is the unfunded liability in public sector pension plans that some estimates put at $3 billion – a gap between money in the plans and their future obligation to retiring workers, said Progressive Conservative MPP Julia Munro (York-Simcoe).

Munro said she’s “skeptical” of the touted $100 million in savings Morneau predicts and said it’s “very small” compared to the funding gap.

“It’s not a priority,” she said of the potential cost savings. “The unfunded liability is a much bigger issue than looking at economies of scale.”

Munro said she’s worried taxpayers – many of whom don’t even have pensions at work -- will be “on the hook” for closing the funding gap.

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